Commercial Division Blog

Court Orders Dissolution of Family-Owned Corporation

On August 3, 2017, following a 6-day bench trial, Justice Dufficy of the Queens County Commercial Division issued a decision in Kassab v. Kasab, 2017 NY Slip Op. 50986(U), ordering the majority shareholder of a family-owned corporation to buy out the minority owner’s shares, and failing that, ordering dissolution of the corporation.

At issue in Kassab was a real estate holding company, owned by two brothers on a 75/25 basis, which held title to two vacant lots in Jamaica, Queens where the brothers operated a parking lot. After a falling out, the older brother and 75 percent owner effectively shut his younger brother out of the business and engaged in “despotic decision-making practices with respect to considering options for the disposition of the real estate holdings of their corporation,” by, among other things, unilaterally rejecting offers to purchase or rent the property. In addition, the Court found that, after the filing of the petition for dissolution, the majority owner was underreporting income from the parking lot business, and diverting funds to himself.

Based on these findings, Justice Dufficy held that there were grounds to order the dissolution of the corporation under Section 1104-a of the Business Corporation Law and New York common law. He entered a judgment giving the majority shareholder ninety days to purchase the minority owner’s interest, at a price determined by the Court based on uncontroverted expert appraisals, without any discounts for lack of marketability. Failing that, the corporation is to be dissolved, its assets sold, and proceeds of sale distributed pro rata to the 25/75% interests of Nissim Kassab and Avraham Kasab.

One interesting aspect of the decision was the Court’s consideration of the post-petition oppressive conduct of the majority owner (e.g., diverting income for his personal enrichment and refusing to consult his brother on all business-related matters). In the equitable context of dissolution proceedings, such post-petition conduct is no less important than pre-petition conduct (indeed, post-petition conduct may also give rise to separate claims for breach of fiduciary duty, various derivative claims, and ultimately to a new dissolution petition). Therefore, it behooves both the petitioner and respondent in a dissolution proceeding to maintain clean hands and to keep consulting with their business partners even after the normal joint operation has been disrupted – because “despotic” and illegal conduct will be held against them.